Plan tackles savings and loan ills. $100 billion needed to restore FSLIC, bank chief predicts

It is the $100 billion question: how to repair the ``safety net'' that insures deposits in the nation's thrifts. Congress and the Bush administration must tackle this painful question this fiscal year - most likely by digging into the government's deficit-stretched pocketbook.

The problem is so immense that United States regulators say it will require new funding that will exceed the combined US resources devoted to Europe under the Marshall Plan and the bailouts of Lockheed, Chrysler, Penn Central, and New York City.

Yesterday, L. William Seidman, chairman of the Federal Deposit Insurance Corporation (FDIC), began the debate by proposing wide-ranging changes in the regulations governing the federal insurance fund and by asking Congress for a down payment of $30 billion for calendar year 1989 to help close 90 of the nation's worst-run thrifts. Mr. Seidman estimates that these thrifts are losing more than $1 billion a month.

Seidman's proposals are the government's first significant efforts to repair a system that he terms ``insolvent.'' Early next year, the General Accounting Office, the Federal Home Loan Bank Board, and the Treasury are expected to weigh in with their own proposals.

What Congress will do is still unclear. For example, the key House Banking, Finance, and Urban Affairs Committee will come under new leadership early in December when Rep. Henry Gonzalez (D) of Texas is expected to take over for Rep. Ferdnand St Germain (D) of Rhode Island, who lost his seat last month. Mr. Gonzalez calls the problem ``an impossible situation'' that will be one of his chief priorities.

Last year Gonzalez proposed a $50 billion loan, financed through the US Treasury, for the ailing fund. The plan, which was not endorsed by the Reagan administration, did not get far. ``They were afraid they would get whiplashed as spenders in the election,'' Gonzalez says.

With the election out of the way, however, the administration is now starting to tackle the issue. Yesterday, Seidman proposed:

Allowing the FSLIC to operate like a private insurance company.

Making the sole mission of the federal insurer to maintain the integrity of its insurance fund. Seidman says the FSLIC should operate independently of the industry it regulates as well as of the congressional appropriations process.

Separating the FSLIC's budget from the regular federal budget. Seidman reasons that when the insurance fund deposits unspent premiums with the US Treasury, it gets no credit. He wants those unspent premiums to be available as a ``payback'' when the fund is strapped for cash.

Requiring the thrift industries' paid premiums to reflect the economic health of the fund. Seidman reasons it will make bankers more forceful in promoting ``firm'' supervision to control risk.

Allowing the federal insurer to deny unsound banks insurance in a timely manner. Instead of taking two years to terminate insurance for a bank, the process should be streamlined to six months.

Changing the banking structure to restrict banks to purely banking activities. For example, if thrifts want to become involved in such activities as lending to companies involved in takeovers, ``firewalls'' should be constructed to safeguard depositors funds.

Learning from the current crisis, Seidman also proposes the formation of regional committees from the different regulatory agencies. These panels would anticipate regional downturns. For example, both commercial banks and thrifts recently rushed at the same time to build office towers in Austin, Texas. This resulted in a high vacancy rate.

The thrift industry has reacted to the Seidman proposals positively. Mark Clark, a senior vice-president for the US League of Savings Institutions, said a task force report due out today will have conclusions ``in the same vein.'' Mr. Clark says the industry would particularly like to see renegade thrifts reined in and stiffer capital requirements for all savings and loans.

Raising the funds to bailout the federal insurance system will be the toughest task. The industry, which is currently paying an extra insurance surcharge of $4.5 billion, does not want to pay still more.

On Tuesday, M. Danny Wall, the chairman of the Federal Home Loan Bank Board, indicated he was considering a plan to allow the Treasury to pay interest on bonds sold to the public for the specific purpose of bailing out the thrifts. -30-{et